Key Insurance Types for Construction
Construction projects often involve numerous risks, but various insurance policies are designed to mitigate these. Common policies include:
- Commercial General Liability (CGL): Protects against third-party claims for bodily injury, property damage, and other liabilities.
- Professional Liability: Covers errors and omissions related to design or professional services.
- Builder’s Risk: Focuses on protecting the project itself from physical damage during construction, such as fires or weather-related incidents.
- Workers’ Compensation & Umbrella Insurance: Provides coverage for labor-related injuries and extends liability limits beyond standard policies.
Each policy type is tailored to address specific areas of risk, ensuring comprehensive protection for both contractors and project owners.
Coverage for Construction Site Risks
While construction insurance covers many risks, it may not always cover faulty workmanship. However, damages to other areas caused by defective work can be covered. Additionally, insurance may cover personal injury or property damage caused by defective construction. In some cases, environmental contamination due to negligence is also insured, though coverage is often subject to specific conditions.
Surety Bonds and Allocation of Costs
Surety bonds are another layer of protection, ensuring that contractors meet their contractual obligations. Types of bonds include bid, performance, payment, and lien discharge bonds. Deciding who bears the cost of insurance and surety bonds—whether the contractor or owner—is typically outlined in the project’s contract. Understanding how these costs are allocated upfront helps avoid disputes later.
Indemnity vs. Insurance: A Key Distinction
In construction, indemnity and insurance work together to manage risk, but they serve different functions. Indemnity clauses shift the responsibility for claims from one party to another. In contrast, “Additional Insured” status allows a party to be covered under another’s insurance policy. This distinction is important in assessing liability and ensuring all parties are adequately protected.
